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Study: Amazon Hurt in States With New Tax Laws

22 Apr, 2014 By: Chris Tribbey

A new study finds that in states that have implemented laws requiring the collection of sales tax on online purchases, practically no online business other than Amazon has been negatively affected, with the online retailer seeing a 9.5% drop in sales in those states.

The report from Ohio State University found that the decline in Amazon purchases was offset by a 2% increase in purchases at local brick-and-mortar stores and a nearly 20% increase in purchases at competing online retailers.

“Though the laws are written generally to apply to all online retailers, Amazon is usually the only retailer to have been affected by such laws because it dominates the online retail space,” the report reads. “Previous empirical work shows that consumers are sensitive to prices and to sales tax, especially in the online retail arena, yet little empirical evidence has been gathered about the effects of wide implementation of such a tax on online and brick-and-mortar retail.”

The study looked at five states that have implemented online tax collection laws — California, New Jersey, Pennsylvania, Texas and Virginia — and examined transaction data for 3 million households. It found that consumers decreased their spending by 15.5% on Amazon purchases of more than $150 and by 23.8% on purchases equal to or more than $300.

Meanwhile, there was a 23.7% increase in purchases at other online retailers and a 6.5% increase in purchases at local brick-and-mortar retailers.

“We conclude that to a small degree, the tax legislation achieved its objective of restoring retail activity to local communities, though most of the gains in ‘leveling the playing field’ are garnered by the online operations of retailers,” the report reads.

State by state, Amazon purchases were reduced the most in California (14.7%), followed by Texas (11%), New Jersey (7.8%), Pennsylvania (6.8%) and Virginia (3.4%).

The report suggests that the Marketplace Fairness Act of 2013 — which would allow every state to collect sales tax on purchases made from out-of-state retailers — would lead to an “increase in the online sales of national retailers while only modestly increasing local brick- and-mortar revenues.” The Marketplace Fairness Act has been passed by the U.S. Senate and is currently before the House.

As of January, Amazon collects sales taxes in 19 states.

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